Why Sony needs the PlayStation 4 ‘Neo’ — even if you hate it

The repeatedly rumored upgraded PlayStation 4 and Xbox One systems are a new spin on an old trick.

PlayStation 4 and Xbox One may both get major upgrades in the near future, according to recent reports from news sites Giant Bomb and The Verge. These new systems could save Sony’s and Microsoft’s profit margins and help it stave off competition from smartphones and tablets. And even if you hate the idea of a mid-cycle upgrade in processing power, analysts point out that this isn’t exactly a new idea, and you don’t exactly have a lot of alternatives if you only want to spend $300-to-$500 on a piece of hardware for gaming.

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As more evidence mounts that we’re getting a PlayStation 4 “Neo” (as Sony allegedly calls it) and an upgraded Xbox One, multiple gaming-market experts told GamesBeat this is following a familiar strategy for the console industry where improved processors for the PS4 and Xbox One are equivalent to larger hard drives for the PS3 and Xbox 360. Throughout the last generation, Sony and Microsoft went from selling consoles with 20GB of storage to offering configurations featuring 250GB or 500GB drives. That enabled the companies to keep devices on retail shelves at a consistently high price, which is how they were able to maximize their revenues in the $99.3 billion video game industry.

For the current generation, more hard drive space isn’t nearly as appealing as it once was. Sony and Microsoft launched their systems with plenty of storage and support for external hard drives. For the fraction of the price of latest 1TB PS4 model you can go online and get a HDD with twice the space.

So instead of bumping up storage space, we’re getting more power in the CPU and GPU, but the motivation is exactly the same, according to SuperData Research chief executive Joost van Dreunen.

“[Sony and Microsoft have] been doing this for generations now and this is in line with previous practice,” van Dreunen told GamesBeat.

Wedbush Securities analyst Michael Pachter echoed that sentiment.

“I see these systems as no different from the myriad new models last generation,” said Pachter. “The last several had cheaper components and bigger HDDs; this generation has a faster CPU and GPU, but the development standards remain the same.”

New power and new developer policies

The latest rumors support van Dreunen’s and Pacther’s viewpoints.

The Verge found that Microsoft has filed a new Xbox One with the Federal Communications Commission that it has cloaked with a non-disclosure agreement that expires shortly after the Electronic Entertainment Expo trade show in June. Giant Bomb, meanwhile, reports that Sony is sending out documentation to developers about the PS4 Neo. That information includes the following improved performance boosts (as calculated by tech site Digital Foundry):

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• PS4 Neo’s CPU is 1.3 times more powerful than the base PS4.
• Neo’s GPU is 2.3 times more powerful than base.
• Memory has 24 percent more bandwidth and 512MB more usable RAM.

That’s a significantly more capable device even if it isn’t anywhere close to a system that can render games at a 4K resolution. But despite those improved specs, Sony is putting some strong restrictions into place to ensure that developers do not leave behind people who already purchased the console and do not wish to upgrade. Most notably, the Giant Bomb report claims Sony will not permit studios to build Neo-only games, and — starting in October — every game that ships for PS4 must include support for both Neo and the base model.

These rules suggest Sony is desperate to ensure that the original PS4 and its upgraded version can coexist just like a PS3 with a 20GB HDD coexisted with a PS3 with a 500GB HDD.

“All games will likely be fully backward compatible, but the newer systems will render in higher definition and allow for better VR experiences,” said Pachter. “I truly don’t think that existing owners will ‘miss out’ on anything any more so than occurred last generation. This time, the CPU/GPU power will be increased, but largely to support ancillary functions. So long as the manufacturers enforce the standard that all games must work on the original specs, gamers will be fine.”

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Of course, Sony knows that a bigger hard drive and a more powerful processor are fundamentally different. That’s why the company is working so hard to set the ground rules for developers right now. If these reports are accurate, Sony wants to establish a messaging around the Neo that says this is just like getting a bigger hard drive. But Sony could point to enforcing policies on the PS3 that prevented developers from requiring large installations that wouldn’t function on older systems as a precursor to what it is doing with the CPU and GPU.

And hell, Microsoft even had a version of the Xbox 360 that didn’t come with a hard drive, and that was notably less capable than the other configurations of that system. Of course, most gamers knew those limitations from the start.

Why this is necessary

Over the last few months, industry-tracking firm The NPD Group has confirmed that hardware sales are dropping year-over-year at retailers in the United States largely due to price cuts by Sony and Microsoft. Fierce competitions between the two companies has led to Microsoft selling its entry-level Xbox One for $300, often bundled with a game. That’s down from $500 at the start of the generation. Sony is selling the PS4 for $350, which is down from $400 in 2013.

Neither company has had much success in plugging in new models with larger HDDs into the market at a higher price point, and NPD says that the average price per console is decreasing steadily.

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New Sony and Microsoft consoles with revised processing components could give many people a reason to spend $400 on new hardware instead of $300.

But this isn’t only necessary because it will keep profit margins high. Sony and Microsoft are likely both feeling pressure from increasingly comparable-looking smartphone games and a PC gaming market that is already far more advanced than PS4 or Xbox One.

“As hardware evolves and gets cheaper at a pace roughly defined by Moore’s Law, [it could lead to consoles getting] completely eclipsed in experience by alternative devices,” said van Dreunen. “And they will lose market share to contending platforms.”

If a new iPad comes out and is capable of producing HD graphics that look nearly identical to the PS4, Sony and Microsoft could end up watching as mobile devices eat into its home market in the same way Apple and Google ate into the dedicated handheld space.

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“These iterations are necessary for consoles to stay relevant,” said van Dreunen. “With consumer time being increasingly fragmented across online content Microsoft and Sony are compelled to put their best foot forward. Brand experience is developed through customer retention through the course of years. Any weakness in product line has enormous ramifications on revenue success and platform longevity.”

Alienating consumers who don’t have a lot of choices

The problem with updating the PS4 and Xbox One half way through the generation is that it could alienate some players who spent $400 to $500 on dated versions of the consoles. But the company’s are likely willing to play with that fire because it makes business sense.

“There is a risk here that it would alienate players,” he said. “Especially with some games trending more toward digital online multiplayer that would give advantages to players with better hardware. But the benefits of not losing market share and maintaining a good price point and higher margins generally outweigh losses on the front of player fairness.”

At the same time, gamers are often a very loud and demanding audience. At the start of this console cycle, people were unhappy over Microsoft’s plans for an always-online Xbox One that would treat even physical games like digital downloads. The backlash was so harsh that Microsoft reversed many of those policies and ended up making a console that worked almost exactly like the Xbox 360, which is what many claimed they wanted.

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Now, a vocal group is once again starting to grow restless about the Neo rumors. Even with the alleged assurances that the original PS4 will continue to function as normal, many people don’t like the idea that a console they bought in the last three years is going to feel antiquated. Console consumers are accustomed to feeling secure about their platform for around four or five years. Now, a PS4 Neo replace that security with pressure to upgrade.

But the truth is that if Sony and Microsoft are both making this move and see it through, it’s not like you have a lot of great options if you want to stop giving them your money.

“Gamers have very limited alternatives for the $300-to-$500 market that consoles are wedged in,” said van Dreunen.

Put another way: Consumers will either have to get over this or move to something like PC gaming, where hardware gradually fades away over time and that pressure to upgrade is ever-present.

Maybe this is an opportunity for Nintendo to swoop in with its NX console as some sort of savior, but it doesn’t seem impossible that we’d start to see the same thing with that. After all, upgrading hardware performance is something that Nintendo did first with its line of Game Boy, DS, and 3DS handhelds, and now Microsoft and Sony are emulating that strategy with home consoles.